US farmers face harsh economy as record corn supplies sit in silos

Illinois farmer Dan Hennebry regrets not being able to sell more of his corn crop last summer when the Midwest needed rain and prices were high.

He is not alone.

Farmers across the United States are bracing themselves to stop selling corn after fields dried up in May and June, raising expectations of higher prices and lower yields.

Instead, prices declined as rains saved the crop. The size and speed of the price decline shocked farmers and filled their storage bins with record amounts of corn.

The sharpest market decline in a decade in 2023 extends into 2024, hurting the US rural economy.

Two years of high prices and tight crop supplies have been quickly reversed due to adverse global weather and disruption from the Ukraine war.

Record-large crops in the United States and Brazil, increased competition for U.S. grain exports and limited domestic demand left huge amounts of corn locked in storage, sending U.S. corn prices to their lowest level since November 2020 on Wednesday. Corn is the world’s most traded commodity crop and often sets the stage for other crops.

Soybean prices also fell to their lowest in more than three years in February.

Ten farmers, economists and market analysts said U.S. producers miscalculated when they held corn instead of booking sales.

The “stock up and ignore” strategy of waiting for higher prices has not paid off, leading some farmers to reduce purchases of expensive equipment and plant less corn.

The interviews also reveal the difficult decisions farmers face when deciding when to sell in the face of potential crop losses.

Corn futures prices CV1, which reached $6.30 a bushel in June, have fallen to $4.10 after U.S. farmers finally reported record crop yields.

“I wish I sold a lot more,” Hennebry said.

US government data shows US producers held 7.83 billion bushels of corn in storage bins on their farms as of December 1, the most for that date and 16% more than the nine-year low in December 2022 .

Globally, leftover stocks are projected to reach a five-year high by September after accounting for all corn used to feed livestock, make biofuels and other purposes.

Hennebry said he still has about 40% of the 2023 crop in storage, including 30,000 bushels on his farm in Central Illinois.

He’s paying 3 to 4 cents a month to keep another 30,000 bushels at the local grain elevator. In a normal year, he said, they wouldn’t have anything stored there.

Before prices dropped last summer, Hennebry said he sold some corn for $5.50 to $5.70 a bushel and then delivered it to the grain elevator for $6.21 a bushel.

He halted further sales because he was counting on bad weather to reduce production and raise prices.

However, prices fell and Hennebry said he sold corn for $4.60 a bushel in December.

He wishes he could have unloaded more goods at that price.

Analysts say there will be renewed pressure on prices as farmers will sell grain stored in their storage.

“Any type of small rally will sell a lot of corn,” Hennebry said.

Fred Huddleston, a farmer in Yale, Illinois, said last month his entire 2023 corn crop is still in storage: about 39,000 bushels at the elevator and 25,000 bushels at home.

The prices never reached the target he set for sales last year, even though he reduced them.

If Huddleston had made a deal to sell 64,000 bushels just after Easter, he could have made about $360,000; $382,000 around Father’s Day in June; and $307,000 on Halloween, based on Chicago Board of Trade corn futures representing the previous autumn’s crop.

At current prices their grain is worth about $263,000. There is often a difference of a few cents between futures and cash prices.

“I kept thinking the market would go up,” Huddleston said. “If nothing happens I’ll eventually give up and start selling.”

Huddleston said they should have sold for about $5.50 a bushel. Although all operations are different, breakeven prices for corn growers in central Illinois were about $5.27 per bushel in 2023, including the cost of land and other expenses, according to University of Illinois estimates.

Farmers have room to disperse crops after expanding their storage capacity 24% over the past two decades to 13.6 billion bushels.

Storing grain gives farmers more control over when and how to sell, to avoid the typically low prices at harvest time and to take best advantage of future increases.

According to U.S. government data, off-farm storage capacity for grain elevators and other commercial operators has increased 40% over the past 20 years, to 11.9 billion bushels.

Economists said higher interest rates make storage more expensive as farmers’ crops are binned rather than sold to reduce debt.

In southern Illinois, the second-largest corn-producing state, based on corn prices and costs of production, farmers could actually make up to $160 per acre of corn this year, economists at the University of Illinois said in a January report.

There may be loss. Two years ago, profits reached about $340 an acre.

This type of expected loss is pervasive in rural America.

The American Farm Bureau Federation, an industry group, said in a report this month that net farm income in 2024 is projected to have the largest year-over-year dollar decline in history.

Deere & Co DE.N, the world’s largest farm equipment maker, expects sales of large farm equipment to decline 20% this year due to low commodity prices and high interest rates.

‘A lot of corn’

In Wamego, Kansas, Glen Brunco, a fifth-generation crop and livestock farmer, plans to delay upgrading machinery and try to repair the equipment himself rather than paying a dealership.

“We are curbing expenses as much as possible,” he said. “We’re trying to avoid some expansion with livestock, just trying to limp along.”

Early forecasts suggest U.S. farmers are likely to cut back on corn plantings and prioritize soybeans in 2024. They may have to struggle to earn profit from any crop.

Brunko said he plans to skip planting corn entirely and grow some sorghum, which requires less fertilizer and has less expensive seeds than corn.

Sorghum can be used to make ethanol, feed livestock or export to China to make baijiu liquor.

Several years ago, Brunco ​​quit growing sorghum because it produces low yields and is difficult to dry at harvest time.

Now, “the economics are better,” he said. “You’re going to lose less money.”

Analysts do not expect a big surge in demand from the drawdown in corn stockpiles.

US exports of agricultural and related products fell 10% by value in 2023 to a three-year low, as plentiful supplies from Brazil and elsewhere challenged US export sales.

Demand from the U.S. meat industry, which feeds corn to livestock, is limited as pig farmers face a decline in demand for hogs while cattlemen have cut their herds due to drought in the Great Plains.

Demand for biofuels, which typically accounts for about a third of U.S. corn production, also worries Rod Weinzierl, executive director of the Illinois Corn Growers Association, as Americans buy more electric vehicles.

“Every turn in the road this year has been bearish,” said Matt Wiegand, a commodities broker at risk management firm FuturesOne in Nebraska.

Reporting by Tom Polansek. Additional reporting by Julie Ingwersen in Chicago; Editing by Caroline Stauffer and Anna Driver

Reuters